FERC Rule 1000: What Does It Mean?

07/01/2012 | Charles Vansant, PE

The Federal Energy Regulatory Commission (FERC) has the responsibility for ensuring just and reasonable rates and preventing undue discrimination by public utility transmission providers. Last year FERC defined a new framework for public utilities and regional transmission organizations planning new transmission networks. The framework is provided in Order No. 1000—Transmission Planning and Allocation by Transmission Owning and Operating Public Utilities. The Final Rule was issued on July 21, 2011, and reaffirmed by Order No. 1000-A on May 17, 2012.

Order 1000 provides the framework for planning large-scale transmission projects, particularly those that will carry renewable electricity across the nation. Generally, FERC has adopted a process where, in general, those who derive the benefits of new transmission lines must shoulder the cost burden.

Changes to Transmission Planning

We see four main requirements in the new rule. FERC 1000A, at its core, is about access and cost allocation, as of May 2012.

Develop an Interregional Transmission Plan. Developing transmission plans between regions has long been recognized as an issue, as few interties have been constructed between regions due to the limited authority of a developer to interact with other organizations, called ”external entities” by FERC. Order 1000 changes this. Through existing regional planning organizations, utilities, state governments, and merchant transmission developers have been mandated to develop and propose transmission projects that exchange power with regions outside their normal boundaries and help reduce transmission costs.

Incorporate Public Policy Requirements into Local and Regional Transmission Planning Processes. Transmission projects that support public policy requirements may now be considered in the same arena as reliability projects. In order to fulfill a public policy requirement, a series of transmission line plans must be developed, estimates of the benefits for each line made, and the projects prioritized. When the best line option is selected, the cost to build that line is to be proportionally shared by the ratepayers. Reliability upgrades are determined in the same manner.

Remove a Federal Right of First Refusal for Certain New Transmission Facilities. This rule removes from commission-approved tariffs and agreements a federal right of first refusal for certain new transmission facilities and allows non-incumbent companies to propose new transmission lines and upgrades to existing lines.

Allowing non-incumbent entities to propose alternative lines will be a big plus for consumers, as exploring more options makes the most cost-effective solution more likely to be implemented. Independent electric transmission companies have already made proposals to have the regional transmission organization evaluate their proposals. Once built and operating, these companies will recoup their investment in the same manner utilities do now: through increased electric rates.

Require the Development of Regional and Interregional Cost Allocation Methods for Projects That Are Reliability Based as Well as for Projects That Support Public Policy. Order 1000 describes four cost allocation principles that will be used by the regional planning authority in determining who pays:

Costs will be allocated in a way that is roughly commensurate with benefits.

There will be no involuntary costs allocated to those who don’t benefit.

If a benefit to cost threshold ratio is used to make that determination, then the ratio must be reasonable within the context of that region.

Allocation of costs will be solely within transmission planning regions(s) unless those outside voluntarily assume costs.

Cost allocation methods for reliability projects are well developed in each region that require each public utility transmission provider to participate in a regional transmission planning process.

Utilities and states have yet to develop a method that determines the relative benefits for each region and then allocates costs on that basis. Currently, economic costs are directly assigned by reliability levels, which are measured in terms of an outage over a number of years. The more years between expected outages, the higher the system reliability will be. Increasing the number of years between expected outages from one in five years to one in 10 years is measurable, and the costs are allocated based on relative benefits to the different regions.

Open Questions

Many questions remain unanswered. If a transmission project is deemed required to fulfill a public policy requirement in one region, how would it benefit the other region? If no benefits are seen by one region, does the other region pay for the entire transmission line? How does one measure the economic benefit of exporting renewable power from one region to fulfill the public policy requirements of another?

FERC describes this order as “blind” to technology. In theory, a transmission line could be authorized and built under these rules that would carry electricity generated by hydro or fossil fuel (natural gas, coal, or oil) as well as renewable energy (wind, solar, or geothermal).

Order No. 1000 also allows many other non-utility organizations to be involved in deciding what transmission lines get built and where. The discussion among these entities will also be open to for-profit independent electric transmission companies and state politicians wishing to export or import renewable electricity.

However, a rule that was designed with the underlying motive of reducing roadblocks to moving renewable electricity long distances may have an unexpected use. The rapid rise in the availability of shale gas has driven down the cost of producing electricity in many regions. It also appears that the rate at which coal plants are closing is increasing, principally caused by historically low natural gas prices. The net effect is lower electricity costs, but at the cost of a reduction in system reliability and operating reserve margins, as discussed in North American Electric Reliability Corp.’s 2012 State of Reliability report, released in May 2012. Neither of these recent developments is particularly helpful for developers of renewable energy facilities.

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